In its meeting of May 11, 2006, the Board of the National Bank of Romania has decided the following:
- to maintain the monetary policy rate at 8.5 percent per annum;
- to continue to pursue a firm control of money market liquidity by significant sterilization of excess liquidity via open-market operations.
The NBR Board also examined and approved the quarterly Inflation Report that will be released to the public in a press conference organized on May 16, 2006.
The analysis of the most recent developments in macroeconomic and monetary indicators shows a continued disinflation process, reinvigorated economic growth as well as the persistence of an unsustainable expansion of consumption.
The slowdown in administered price growth (energy, medicines, fixed telephony tariffs) and in volatile food prices during the first months of 2006 triggered a temporary, better than expected drop in inflation, with year-on-year consumer price inflation falling to 6.92 percent in April from 8.6 percent in December 2005.
Although disinflation has continued, the short-term inflation outlook has worsened following the impact of increases in indirect taxation on tobacco and alcohol products and of a deterioration of inflation expectations due to uncertainties related to the calendar of administered price adjustments.
Growing investment and strong household consumption dynamics, also supported by credit expansion have contributed to an increase in excess demand, while external imbalances have widened. The increase of non-government credit remained robust against the background of heightened bank competition and a change in its structure, where the growing share of lending in lei has led to an improvement of the monetary policy transmission mechanism.
The NBR Board believes that implementation of a balanced mix of economic policies (monetary, fiscal, income and structural) is essential to consolidate the disinflation process and continue the convergence process with the European Union. As a part of this mix, the NBR Board envisages to keep a restrictive monetary policy stance for a longer period of time.
Under these circumstances and in light of the available data, the NBR Board has decided to maintain the monetary policy rate at 8.5 percent per annum, a decision which, on the background of a consolidation of disinflation will increase the restrictiveness of monetary conditions. It also decided to continue to pursue a firm control of money market liquidity by significant sterilization of excess liquidity via open-market operations.
The NBR is restating it will continue to closely monitor monetary and macroeconomic trends in order to appropriately use its entire array of available instruments with the aim to counter inflationary pressures and bring inflation on the forecast trajectory over the medium term.
The NBR Board also examined and approved the quarterly Inflation Report, a document that assesses the recent macroeconomic context, presents the inflation outlook as well as the main challenges and risks for monetary policy in the coming period. The report will be released to the public in a press conference organized on May 16, 2006.
According to the announced calendar, the next NBR Board meeting dedicated to monetary policy issues is scheduled for June 27, 2006.